Early Gains Wane But Stocks Remain Positive - U.S. Commentary

By IBT Staff Reporter On 07/01/09 AT 2:38 PM

RTTNews - Prompted by some promising economic data, stocks rallied in early trading on Wednesday, although buying interest has waned considerably since then. The major averages remain in positive territory by comfortable margins, but the rally has been slowed by the day's relatively low volume, characteristic of the summer trading season.

The early upward move was due in part to the Institute for Supply Management's report showing that the contraction in manufacturing activity slowed in the month of June amid some encouraging signs for the sector.

Further bolstering the day's optimism was a report from the National Association of Realtors showing that pending home sales increased for the fourth consecutive month in May. Favorable housing affordability and a first-time buyer tax credit contributed to the continued increase.

Meanwhile, data from the Commerce Department indicated that construction spending fell by more than expected in May, mitigating some of the positive mood on Wall Street.

Earlier, traders largely shrugged off a report from private payroll processor Automatic Data Processing revealing that private sector employment fell by more than economists had been expecting in the month of June, as the report also showed a slowdown in the pace of job losses.

This afternoon, a number of leading car manufacturers reported June sales that were largely disappointing. However, while Ford (F) reported a 10.9 percent drop in sales, the decrease was the smallest since last July.

The major indices have continued their steady pullback from the morning's highs in recent trading, but they currently remain in positive territory. The Dow is up 69.98 at 8,516.98, the Nasdaq is up 14.30 at 1,849.34 and the S&P 500 is up 6.41 at 925.73.

Dow Components

Most of the Dow components are in the green in mid-afternoon dealing, helping the blue chip index to post a solid gain on the day.

Shares of Intel (INTC) are seeing notable upside, climbing by 3.7 percent on the session. With the gain, the stock reached its best intraday price in over eight months earlier in the day and is poised to set at a nine month closing high.

Kraft Foods (KFT) and Coca-Cola (KO) are also turning in strong performances, rising by 5.3 percent and 2.5 percent, respectively. Despite the surge, the stocks continue to be stuck within recent trading ranges.

Additionally, Caterpillar (CAT) is up by 1.5 percent and Procter & Gamble (PG) has advanced by 2.1 percent, although neither has been able to break out of their recent trading ranges.

Some of the day's weaker performances have come in shares of American Express (AXP) and Pfizer (PFE), which have fallen by mild margins.

Sector News

Gold stocks continue to post strong gains in mid-afternoon trading, offsetting the majority of yesterday's losses. The NYSE Arca Gold Bugs Index is up by 4.9 percent, although it remains well off the ten-month closing high it set in early June.

The gains by gold stocks come as the price of the precious metal moved notably higher after showing a steep decline on Tuesday. After ending the previous session down $13.30 at $927.40 an ounce, gold for August delivery closed up $13.90 at $941.30 an ounce.

Healthcare provider stocks are continuing their strong performance, with the Morgan Stanley Healthcare Provider Index up by 2.8 percent on the day. With the move, the index is continuing to move off the nine week closing low set late last month.

Helping to lead the sector higher are shares of Psychiatric Solutions (PSYS), which are up by 3.1 percent on the session. The day's gain propelled the stock to its best intraday price in four months, as it continues to recover from its March lows.

Airline and networking stocks are also posting notable gains, with the NYSE Arca Airline Index and the NYSE Arca Networking Index both advancing by 2.3 percent. The indices are continuing their climb away from roughly one-month closing lows set in late June.

Additional strength is visible among tobacco, semiconductor, transportation and health insurance stocks, reflecting the broad based gains in equity markets on the day.

In Focus: Economic Data, Earnings News

As mentioned above, the ISM said its index of activity in the manufacturing rose to 44.8 in June from 42.8 in May, with a reading below 50 indicating a contraction in the sector. The index came roughly in line with the expectations of economists, who forecast a reading of 44.6.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June.

Separately, housing industry group NAR said its pending home sales index rose 0.1 percent to 90.7 in May from an upwardly revised reading of 90.6 in April. Economists had been expecting the index to come in unchanged compared to the 90.3 originally reported for the previous month.

More economic data came from the U.S. Commerce Department, which revealed that construction spending fell 0.9 percent in May, following a revised 0.6 percent increase in the previous month. Economists had expected construction spending to fall by 0.6 percent compared to the 0.8 percent increase that was originally reported for April.

Meanwhile, ADP said that non-farm private employment fell by 473,000 jobs in June following a revised decrease of 485,000 jobs in May. Economists had expected a decrease of 394,000 jobs compared to the loss of 532,000 jobs originally reported for the previous month.

On the earning front, General Mills (GIS) reported adjusted fourth-quarter net income of $0.86, up 18 percent from $0.73 in the same period last year. Analysts expected the firm to report earnings of $0.80 per share. Shares of the consumer foods manufacturer are seeing some strength in mid-afternoon dealing.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended Wednesday's session on a mixed note. Japan's benchmark Nikkei 225 Index closed down by 0.2 percent, while South Korea's KOSPI Index closed up by 1.6 percent. Trading in Hong Kong was closed for the day.

Meanwhile, the major European markets closed notably higher, with the German DAX Index and French CAC 40 Index rising by 2 percent and 2.4 percent, respectively. The U.K.'s FTSE 100 Index also moved higher, advancing by 2.2 percent.

In the bond markets, treasuries continue to linger in negative territory. Subsequently, the yield on the benchmark ten-year note is trading at 3.554 percent, a jump of 3.1 basis points on the day.